Yesterday, the Financial Conduct Authority (FCA) released a report proposing changes to improve competition between investment platforms.
You might assume that for us competition is a bad thing, but we disagree. Ultimately, evestor was created out of frustration in the current investment market. Anything that offers more choice for the customer is fine by us – including a bit of healthy competition!
Amongst other topics, the FCA’s report revealed concerns about how platforms compete now and suggestions for how they can change to make comparison and transfer (moving your investments from one platform to another) easier for consumers.
They found that around 7%1 of all consumers have tried and failed to switch investment platforms and their report details the barriers these consumers faced when looking to switch.
With investment transfers this complex, is it any wonder the FCA are questioning whether the pressure is really on platforms to deliver value for money for their investors?
Should I stay, or should I go?
Across different industries improvements are being made to give customers more choice. Household utilities and phone contract switches are being simplified and challenger banks like Monzo are taking the hassle out of current account switches. However, the investment market is still far behind.
Of the 7% mentioned above who tried and failed to transfer their investments, 38% found the process too time consuming, 29% found the process too complicated, 28% were deterred by exit fees and 22% couldn’t even find information to compare different providers!1
We see these issues daily when trying to review our customers current investments or carry out transfers. Often the process can take months. Just ask Hayley Millhouse, Head of Advisory Services here at evestor.
‘We experience many issues when trying to complete a transfer review or product transfer for our customers. Many providers do not accept electronic signatures, and so we have to send forms out in the post to be signed, making the process slow and complex for our busy customers.
We can be waiting weeks for providers to post us a valuation pack or to process a letter of authority we have sent them - all this adds up to a long-drawn out process for our customers.’
How do fees compare?
We always say that what you pay in fees has a huge impact on your investment returns. Platform fees can vary, take this from the FCA’s report as an example:
‘Charges on a pot of £5000 investing in stocks and shares ISA can vary from 20 bps to 240 bps, with a potential £650 difference in returns over a 5-year period (assuming a 5% growth rate).’ 2
This is why it’s so important for fees to be transparent and easy to compare. 39% 3 of non-advised customers who invested through platforms told the FCA that they would choose a platform based on price, but it’s currently very difficult for consumers to find and compare fee structures. 30% of advised customers either don’t think they pay or don’t know whether they pay fees.4
Complex and hidden fee structures could result in consumers choosing or switching to a platform that’s a worse option for them – some may not even bother entering the investment market at all! Worse still is that the FCA alluded to some fee structures being overly complex by design:
‘We note that some of the practices we have observed are consistent with the way firms would behave if they wanted to strategically increase complexity.’ 5
We’re really glad that a spotlight is being shone on the need to improve the investment transfer process and on the way fees between platforms can be compared.
Following feedback from this initial report, the FCA will be outlining a full report in the first quarter of 2019 which could include their outlining new expectations on several issues such as exit fees, cost for switching and transfer timescales.
1 Investment Platforms Market Study, Page 32, 3.68
2 Investment Platforms Market Study, Page 6, 1.15
3 Investment Platforms Market Study, Page 6, 1.13
4 Investment Platforms Market Study, Page 27, 3.45
5 Investment Platforms Market Study, Page 48